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Slow Start To The Week?

Slow Start To The Week?


The market finally realised that the dollar should not be going down… That it managed as much as it did, rather like a stretched elastic, was quite a testament to the Fed’s interest rate decision but when viewed in the larger picture it would appear to be a mere blip that will be forgotten. The reversal higher in the dollar on Friday was therefore timely. Having said that, it is unlikely to extend those gains by very much today. Most of the strength should occur in early trading – maybe into Europe. It’s unusual to see key swing highs/lows broken on the first attempt – except when there is a stronger catalyst.

So the problem to solve over today and maybe tomorrow is how deep the correction will be and which corrective structure will develop. There are plenty of alternatives… If there is any one pair that could see a swifter follow-through then it’s GBP/USD that appears to have a more direct move to its first reversal. Even then I’d be a little cautious because the rally we have just seen was a tad complicated and could include a misjudgement.

Other indications that tend to suggest the comments above come from the daily Price Equilibrium Clouds that are currently providing dollar resistance that could hold for a while. In both EUR/USD and USD/CHF these Clouds are flat – so there will be risk of penetration but the current structures suggest that they will hold. Equally, observing USD/JPY in particular, Friday’s alternative outcome of a dip lower developed and tends to confirm further sideways trading before it can break free.

The Aussie is basically in the same boat as the Europeans.

Thus, take care in the early stage of the day and look for quick trades in the reversal.

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